Coloplast: One of the world’s most ethical healthcare companies
When I first met the management team of Denmark-based Coloplast in February 2010, I was pleasantly surprised by the honesty and unpretentiousness they exhibited. I knew from that initial meeting, that I had probably just encountered an “exceptional company”, the type of organisation equity research analysts, as I was at the time, often work diligently to discover. I therefore dedicated much of my research time learning about Coloplast, which is the world’s largest manufacturer of ostomy bags and continence care products, and also a leading manufacturer of urology care and wound & skin care products.
Whereas Victorinox’s lessons stem from more periodic transitory pressures, Coloplast offers additional lessons as it has adapted through long-term and ongoing pressures stemming from increasingly strained UK and European health systems. Coloplast has demonstrated that through patience and respect for others, adapting to an ongoing adversity can be done while limiting the pain to individual employees and maintaining excellence in quality.
With publicly-listed companies having to report their earnings to investors every three or six months, it is not difficult to understand why company management teams often wish to take “corporate transformational” measures which are done quickly. Although this may provide a short-term gain, as say for a medical products manufacturer, this may imply the cost of production suddenly plummets if the transformation involves the shifting of production to low cost locations. Time and time again though, as an equity research analyst, I have seen how these quick transformations result in quick, undignified staff firings and rushed transitions which often lead to product quality issues. Not so with Coloplast.
In the early 2000s, recognising the challenges facing the European health care systems where it derives most of its sales, Coloplast set out to transition the majority of its production from higher-cost locations such as Denmark to lower cost locations, namely Hungary, and subsequently, China. It was a transformation that would be difficult as it would indeed include staff redundancies but its necessity was recognised, if Coloplast did not lower its cost it could cease to be a viable organisation (from which no one is employed). However, with a culture that respects the individual dignity of its employees and exceptional commitment to product quality, Coloplast didn’t just set out to carry out this transition in 2 years, or 5 years – the transition only became largely complete over the past two years, something very rare indeed in today’s corporate world. With England’s health and social care system currently facing substantial pressures from fiscal austerity, the lessons offered by Coloplast are very timely. Further, and this is particularly relevant to the social care sector, where some of the larger care providers are heavily indebted, it is my firm belief that Coloplast was able to pursue this corporate transformation with such patience largely due to its focus on maintaing a conservatively financed company (that is, avoiding excessive debt).
What was the end result of this patience? The result is that Coloplast had the opportunity to reduce its staff levels in “high-cost” locations in ways that mitigated the hardship on dislocated staff – through extended consultations, early and normal retirement, role transfers, and other measures. In addition, measured preparations of new factory premises, training of staff, and gradual transition of equipment meant that the quality of Coloplast’s medical products was maintained. Having an incredible admiration and respect for Coloplast, I for one am happy to see Coloplast has successfully adapted to the challenging health care environment in Europe, for the benefits of its numerous end users, many of whom are also the patients and care recipients of England’s health and social care system.
Particularly important to England’s home care sector, there is another lesson to be learned from Coloplast, and that’s regarding the responsible financing of an organisation in which numerous vulnerable individuals are dependent. With the 2011 collapse of Southern Cross, the importance of responsible financing has already been demonstrated. Coloplast was largely able to manage its corporate transition over the 2000s and past few years due to its commitment to being responsibly financed. Responsible finance ensures organisations have the breathing room to adapt to adversity. With the financial accounts of many of the larger care organisations being public, it does not take much research to see that some organisations may have difficulties adjusting to the ongoing austerity England’s health and social care system is experiencing. This is one of the reasons why I am pleased with the Department of Health’s 1 Dec 2012 opening of a 12-month consultation over new measures to protect a care recipient in the case their provider fails.
Link to Part 1 of the article series.
Link to Part 3of the article series.
References
Coloplast named one of the world’s most ethical companies: 16 Mar 2012 (Coloplast, 2012), available online.
Larsen, M. M. & T. Pedersen, Coloplast: Ten years of global operations: 02 Aug 2012 (Richard Ivey School of Business Foundation, 2012), abstract available online.
DH seeks views on new protections if care providers fail: 10 Dec 2012 (Department of Health, 2012), available online.
Robert Stephenson-Padron is Penrose Care’s managing director. Prior to founding Penrose Care in 2012 with Dr. Matthew Knight, Mr. Stephenson-Padron was a healthcare equity research analyst at Merrill Lynch in London. Prior to joining Merrill Lynch in in 2010, Mr. Stephenson-Padron was a healthcare equity research analyst at Barclays Capital, also based in London. From 2003-2008, Mr. Stephenson-Padron was a research assistant to epidemiologist Prof. Alison Galvani of Yale University.